New Delhi: The government's announcement of enhancing gross borrowings to Rs 12 lakh crore from the budgeted Rs 7.8 lakh crore in FY21 will largely take care of the revenue shortfall, leaving little space for fiscal stimulus, unless the Centre sharply cuts the budgeted capex and reprioritises expenditure, according to India Ratings and Research (Ind-Ra).

Notwithstanding the low crude prices and increased excise on petrol and diesel, Ind-Ra estimates the gross and net-tax revenue of central government in FY21 to fall short of the budgeted estimate by Rs 4.32 lakh crore and Rs 2.52 lakh crore respectively.

As weak economic activities will also have an impact on non-tax revenue, Ind-Ra expects dividend and profit and other non-tax revenue to decline by Rs 1.48 lakh crore from the FY21 budget estimate. This means the central government is staring at a revenue shortfall of Rs 4 lakh crore from the FY21 Budget estimate.

Ind-Ra said the central government is unlikely to meet even the revised estimate of FY20 due to the countrywide lockdown. The Centre's gross and net-tax revenue is now estimated (best scenario) to be Rs 1.73 lakh crore and Rs 1.2 lakh crore, less than FY20 revised estimate.

This will translate into a revenue shortfall of Rs 1.62 lakh crore from the FY20 revised estimate.

Ind-Ra said it expects the revenue shortfall to account for 95.1 per cent of the increased borrowings, leaving a purse of just around Rs 20,000 crore for the central government to provide fiscal stimulus.

This is too small an amount to make any difference to the sagging economic activities and demand. Clearly, the challenge is huge with hardly any fiscal space, despite an increase of gross borrowing by Rs 4.2 lakh crore.

Nonetheless, Ind-Ra believes the onus is on the central government to provide support to not only vulnerable sections of the society but also state governments, because the actual battle against Covid-19 and associated expenditure is incurred by state governments.